Machinery purchased for $56,000 by Eggo Corp. on January 1, 2013, was originally
ID: 2539799 • Letter: M
Question
Machinery purchased for $56,000 by Eggo Corp. on January 1, 2013, was originally estimated to have an eight-year useful life with a residual value of $4,000. Depreciation has been entered for five years on this basis. In 2018, it is determined that the total estimated useful life (including 2018) should have been 10 years, with a residual value of $4,500 at the end of that time. Assume straight-line depreciation and that Eggo Corp. uses IFRS for financial statement purposes.
Required
1. Prepare the entry that is required to correct the prior years’ depreciation, if any.
2. Prepare the entry to record depreciation for 2018.
3. Repeat part (1) assuming Eggo Corp. uses ASPE and the machinery is originally estimated to have a physical life of 8.5 years and a salvage value of $0. In 2018 it is determined that the total estimated physical life (including 2018) should have been 11 years, with a residual value of $100 at the end of that time. Round to the nearest dollar.
Explanation / Answer
1. No Entry is required to correct the Prior's Year Depreciation. 2.Journal Entry to Record deprecation for 2018 Acount, Short title Debit Credit Deprecation Expense $3,800.00 Accumulated Depreciation $3,800.00 Being Deprecation booked for Year 2018 Working note for Part-2 Original Straight line Depreciation=( $56000-$4000)/8 $6500/Year Depericiation already charged from 2013 to 2017, 5 year ( $6500*5) $32,500 Book Value on 31/12/2017 ( $56000-$32500) $23,500 Revised Deperication for Year 2018 Onward ( $23500-$4500)/5year left $3800/year Part-3 Original Straight line Depreciation=( $56000-0)/8.5 $6588/Year Depericiation already charged from 2013 to 2017, 5 year ( $6588*5) $32,940 Book Value on 31/12/2017 ( $56000-$32940) $23,060 Revised Deperication for Year 2018 Onward ( $23060-$100)/6year left $3827/year
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